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Thursday, 29 January 2015

Forex- Basic Trading Concepts Defined

What is Forex- For the Novice Trader

Opening a price chart

To get started, click on the ‘create marketshot’ button at the top of the trading station. Next, you need to pick a currency pair, select the period, and specify the data range.

The period is the time interval that the chart updates. For example, a period set to one day (d1) means that each point on the chart represents one trading day of data. A period set to five minutes (m5) means that each point on the chart represents five minutes of data. The data range is the amount of data you want the chart to populate. If you want to look at a full year of data, you’d set the data range to one year.

Using candlestick charts

The default chart type is called a ‘candlestick’ chart. This chart type is used frequently in the forex market. A bar on a candlestick chart shows the open, close, high and low prices for the selected period. The body of the candle shows the open and close prices where the wicks show the high and low prices.

If the closing price is higher than the opening price of the previous candle, then the candlestick will be blue. If instead the closing price is lower than the opening price of the previous candle, then the candlestick will be red. Candlesticks simply make it easier to see if the trading period ended up or down.

Adding an indicator

Just looking at forex charts can be helpful in making a trading decision, but many traders also use technical indicators to help them make more informed trading decisions. These tools help a trader locate price trends and predict future price movements. The trading station is equipped with over thirty popular pre-loaded indicators. Over six hundred popular and custom indicators are downloadable online. To add an indicator to a chart, right click on the chart and select ‘add indicator.’

Drawing a trend line

Prices trend in one of three ways: up (bull market), down (bear market) or sideways (range bound market). A trend line is used to help a trader visually recognise which trend direction is in place. Until the trend is “broken,” a trader can reasonably expect the trend to continue. Trend lines are drawn with the ‘pencil’ tool. Typically, when you draw a trend line, you want to connect two or more extreme high or low prices that define the trend. Here are a few examples:

Up Trend Down Trend Horizontal Trend

Most Traded Pairs

Although some retail dealers trade exotic (less popular) currencies such as the Thai baht or the Czech koruna, the majority trade the seven most traded currency pairs in the world. The four most popular, also known as "the majors" are:

EUR/USD (euro/dollar) – "euro"

USD/JPY (U.S. dollar/Japanese yen) – "gopher"

GBP/USD (British pound/dollar) - "cable"

USD/CHF (U.S. dollar/Swiss franc) – "swissie"

The three less popular commodity pairs are:

AUD/USD (Australian dollar/U.S. dollar) – "aussie"

USD/CAD (U.S. dollar/Canadian dollar) – "loonie"

NZD/USD (New Zealand dollar/U.S. dollar) – "kiwi"

These currency pairs, along with their various

These currency pairs, along with their various combinations (such as EUR/JPY, GBP/JPY and EUR/GBP) account for more than 95% of all speculative trading in FX. Given the small number of possible trades - only 18 pairs are actively traded - the FX market is much less broad than the stock market. (For more, see Top 8 Most Tradable Currencies and Popular Forex Currencies.)